What Powell Needs to Know About U.S. Labor-Force Participation
Here are six lessons that Jerome Powell will need to have a handle on.
(Bloomberg) -- Jerome Powell, President Donald Trump’s nominee to head the Federal Reserve, says he’s focused on the disappearance of men from the U.S. labor force. He’s not the first: Fed Chair Janet Yellen counted it as a major concern and part of why she never took the main unemployment rate at face value, even as it dipped to a 16-year low.
But Powell, who’s slated to succeed Yellen in February, is correct that prime-age male labor participation may hold the key to getting the next stage of Fed policy right. We took a dive into labor data across the country, and here are six lessons that the new chairman will need to have a handle on.
1. Boosting prime-age male participation will be an uphill fight
The participation rate of prime-age workers – those 25 to 54 years old – tells a more complete picture than the main unemployment rate. Just after World War II, 97 percent of working-age men were participating in the labor force – either employed or actively searching for a job. That number has steadily decreased and is today at 88.5 percent.
That means one out of every nine men is not only unemployed, but has given up looking for work. Since the unemployment rate only takes into account people actively in the workforce, those not participating are left out of that calculation. That’s how you can have an unemployment rate of 3.3 percent for prime-age males, but also have 11.5 percent of that cohort not in the workforce.
As things stand now, the participation rate for all males will continue to decline, according to Congressional Budget Office projections. Even adjusted to exclude the effects of an aging population, which accounts for a large share of the decline in the overall participation rate, the rate is still expected to fall over the next 25 years.
2. Participation will be even harder to tackle in some states
The shortfall in male participation that Powell pointed to varies dramatically by state, which may support the Fed nominee's idea that it represents slack. As of 2016, the most recent year for which data is available, West Virginia had the lowest rate among prime-age men, at 80.2 percent. The Appalachian state has historically had one of the country’s lowest participation rates. Even at the end of the 1970s, when the national rate for 25-to-54-year-old males hovered in the mid-90s, West Virginia’s was at 90 percent.
Close behind it are other states with long histories of poverty: Mississippi, Kentucky and New Mexico. While Utah's 93.1 percent rate leads the nation, all 50 states have seen a decline in labor-force participation for prime-age men since the 1970s.
3. The opioid epidemic has played a major part
Both Powell and Yellen have said opioid addiction is one of the reasons more men aren't in the labor market. The data show that states with low prime-age male participation rates also have high rates of opioid overdose deaths.
Princeton University economist Alan Krueger’s research has found that the increase in opioid prescriptions from 1999 to 2015 could account for one-fifth of the decline in men’s labor-force participation. Krueger also finds that nearly half of prime-age men not in the labor force take prescription painkillers daily.
4. But the decline of male-dominated jobs has also taken a toll
It’s not just the opioid crisis. In the late 1970s, the U.S. workforce was heavily concentrated in male-dominated industries. Manufacturing was the largest industry in the country, employing about 22 percent of workers in 1978. Nearly three-quarters of those were men, which hasn’t changed. That industry has by far seen the biggest decline in the past 50 years and today only employs 8.5 percent of the workforce. The largest gainer in employment is education and health services, which is 77 percent female and now makes up almost 16 percent of the labor force.
Those manufacturing jobs are unlikely to return in droves following years of offshoring and globalization. That means more men will need to go into traditionally female occupations, such as nursing, if they want to rejoin the workforce. Colorado, which has the fourth highest prime-age male participation rate, has a high percentage of its workforce employed in professional and business services, and leisure and hospitality, two of the top-employing industries nationally.
The states that have seen the biggest declines in male labor-force participation in the past 50 years are ones that have large blue-collar workforces in sectors that mostly have employed men. In West Virginia, mining, manufacturing and construction employed 23 percent of the state workforce in 1990. That had plunged to 13 percent by this year.
The state's drop, “relative to the nation, has been driven in large part due to industrial composition,” said John Deskins, a West Virginia University economics professor.
5. Education and skills training are key to boosting male participation
The change in industries in the U.S. has also created an environment where higher education is increasingly becoming necessary for stable, middle-income jobs. In the 1970s, men without college degrees could often get good work in manufacturing or other sectors. Today, many of those jobs have disappeared and in their place are jobs like nursing or teaching, which require college degrees. Workers with at least a bachelor’s degree earn two-thirds more than those with only a high school education, and participate in the labor market at a higher rate.
With the low unemployment rate, job openings are near a record high as employers struggle to find workers with the skills they seek. Some corporations have created training programs, or partnered with community colleges, to ensure they get workers with the high-tech skills now required for manufacturing in the U.S. Economists and politicians, including the Trump administration, have advocated for a revival of vocational training programs to help better prepare U.S. workers.
The U.S. job market is becoming increasingly polarized as the labor force transitions from routine tasks – manufacturing, construction – to non-routine tasks. This latter category is often either low-skill or high-skill: a taxi cab driver or a lawyer. The middle layer, often comprised of jobs that pay a living wage, is effectively fading away.
6. Women are gaining but could use a boost as well
Only one-third of prime-age women worked immediately following World War II, a number that has surged to 75 percent today. But one thing that increase didn't result in is more stay-at-home dads: The share of married-couple families where women are the sole breadwinners was 5.4 percent in 2016, little changed from 4.6 percent in 1995.
To contact the editor responsible for this story: Scott Lanman at slanman@bloomberg.net, Randy Woods
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